Report: $40B in bankruptcy aid sought for GM, Chrysler

Is bankruptcy The Best Answer for GM, Chrysler's survival?

Outside advisers to the U.S. Treasury have started lining up the largest bankruptcy loan ever, talking with banks and other lenders about at least $40 billion in financing for General Motors and Chrysler in case the two automakers need it, the Wall Street Journal reports.

Administration officials said they are trying to find a way to restructure the two companies without resorting to bankruptcy proceedings, and that the latest efforts are "due diligence."

Initial discussions call for private banks to provide the financing, with the government guaranteeing or backstopping the loan. Lenders are reluctant to commit funding to GM or Chrysler for several reasons -- most are concerned they won't get all their money back. The government advisers also are looking at ways the Treasury could "prime" banks making the debtor-in-possession, or DIP, loans, so the government could be paid back before private creditors.

The estimated $40 billion in DIP financing that GM and Chrysler would need would be five times as large as the previous record for such financing, which is used to fund day-to-day operations while companies sort out their debt....More

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Focus on White House in auto bailout saga

WASHINGTON, Dec 12 (Reuters-By Matt Spetalnick ) - The Bush administration said on Friday it could be willing to provide emergency aid to the teetering U.S. auto industry, keeping open the prospects for a bailout the day after Congress failed to approve a deal.

Warning of dire consequences for the recession-hit U.S. economy if the once-mighty automakers collapsed, the White House -- in a reversal of policy -- said it was ready to consider dipping into a $700 billion Wall Street bailout fund to help keep the companies afloat.

'The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry,' White House spokeswoman Dana Perino said.

Democratic leaders and the main U.S. auto workers union appealed to Bush's Republican administration -- now in its final weeks before turning over to Democratic President-elect Barack Obama -- to provide emergency funds after a Senate deal to save Detroit's Big Three collapsed in acrimony late on Thursday.

The failure of the $14 billion bailout plan in Congress sent markets reeling around the world. Shares in Toyota Motor Corp the world's biggest carmaker, lost a tenth of their value, and European automakers also closed sharply lower.

But signs that the White House and U.S. Treasury Department were prepared to mount a last-ditch effort to help the carmakers buoyed Wall Street, and large initial losses were mostly recouped.

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